1979 (10) TMI 28 - HC - Income Tax

Issues Involved:
1. Whether the assessee is disentitled from carrying forward the development rebate of the earlier years to the extent of Rs. 1,77,077 as held by the Income-tax Officer or to the extent of Rs. 1,06,773 as held by the Appellate Assistant Commissioner and the Tribunal.

Issue-wise Detailed Analysis:

Issue 1: Disentitlement from Carrying Forward Development Rebate

Background:
The reference pertains to the assessment year 1963-64. The assessee had incurred losses up to the assessment year 1962-63 and was eligible for development rebate on installed plant and machinery. The development rebate could not be allowed in earlier years due to losses and thus was carried forward. For the assessment year 1963-64, the total income was Rs. 2,18,396 after setting off brought forward loss. The Income-tax Officer (ITO) allowed a development rebate of Rs. 1,04,957, resulting in a balance of Rs. 1,13,439. The ITO noted that the reserve created by the assessee was short by Rs. 34,517, leading to a forfeiture of Rs. 46,023 in development rebate. The ITO later rectified the assessment, increasing the forfeited amount to Rs. 1,77,077.

Appellate Assistant Commissioner (AAC) Findings:
The AAC accepted the assessee's contention that the total income was Rs. 2,11,730 and the reserve created was Rs. 78,922. The development rebate allowed was Rs. 1,04,957, leaving a balance of Rs. 1,06,773. The AAC concluded that the forfeiture should be limited to Rs. 1,06,773.

Tribunal's Confirmation:
The Tribunal confirmed the AAC's order, stating that the maximum development rebate could be Rs. 2,11,730, which would reduce the total income to nil. Since the reserve created was Rs. 78,922, the development rebate allowed was Rs. 1,04,957, and the balance of Rs. 1,06,773 would lapse.

High Court Analysis:
The High Court examined the relevant provisions under sections 33 and 34 of the I.T. Act, 1961. Section 33 provides for development rebate on new machinery or plant, and section 34(3) mandates creating a reserve of 75% of the development rebate to be allowed. The court emphasized that the assessee must create the reserve to the extent of the development rebate allowed to reduce the total income to nil.

Key Findings:
1. The assessee created a reserve of Rs. 78,922, allowing a development rebate of Rs. 1,04,957.
2. The balance income after allowing the development rebate was Rs. 1,06,501.
3. The assessee needed to create a reserve of 75% of Rs. 1,06,501 to be eligible for the development rebate.
4. The failure to create the requisite reserve would result in forfeiture of the development rebate to the extent of Rs. 1,06,501, not Rs. 1,77,077 as determined by the ITO.

Conclusion:
The High Court concluded that the assessee is disentitled from carrying forward the development rebate only to the extent of Rs. 1,06,501. The Tribunal's reference to Rs. 1,06,773 was noted as a possible mistake, and the Tribunal was directed to examine and correct the figures accordingly.

Final Judgment:
The reference was answered in favor of the assessee, limiting the forfeiture to Rs. 1,06,501. The Tribunal was instructed to verify and correct the amount to be carried forward. The reference was answered with costs, and counsel's fee was set at Rs. 500.

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